Originally opened on August 17, 1876, the hospital was known as the New Jersey State Lunatic Asylum at Morristown. The asylum officially received the familiar Greystone Park name in 1924. The idea for such a facility was conceived in the early 1870s at the persistent lobbying of Dorothea Lynde Dix, a former school teacher who was an advocate for better health care for people with mental illnesses. Because of her efforts, the New Jersey Legislature appropriated $2.5 million dollars to obtain about 3.007 square kilometers (743 acres) of land for New Jersey’s second "lunatic asylum." Great care was taken to select a location central to the majority of New Jersey's population near Morristown, Parsippany, and Newark. The land Greystone was built on was purchased by the state in two installments between 1871 and 1872 for a total of $146,000.

At this time in history, New Jersey's state-funded mental health facilities were exceedingly overcrowded and sub par compared to neighboring states that had more facilities and room to house patients. Greystone was built, all 62,589 m² (673,706 ft²) of it, in part to relieve the only — and severely overcrowded — "lunatic asylum" in the state, which was located in Trenton, New Jersey. In fact, Greystone's initial 292 patients were transferred from the Trenton facility to Greystone based on geographic distribution, setting precedent for Greystone to become the facility that would generally accept patients whose residences were in the northern part of the state. This proved to be the very reason why Greystone quickly became overcrowded in the heavily-populated North while the Trenton facility's number of patients remained relatively stable in the sparsely populated South.

In just four years after Greystone opened, it was already accommodating around 800 patients in a facility designed for 600. By 1887, the exercise rooms and attic space were converted to dormitories to create extra rooms for the influx of new patients. In an attempt to relieve the further overcrowding, the Dormitory Building was built behind the Main Building in 1901. It, however, wasn't enough to ameliorate the problem and thus in the same year the dining rooms on each floor had to be converted into dormitories as well. 13 years later, in 1914, the facility housed 2,412 patients, but now had an absolute maximum capacity of 1,600.

The next few decades saw a flurry of construction as supply was scrambling to meet demand. Of note was a new reception building named after the influential Greystone superintendent, Marcus Curry. Patient numbers are believed to have peaked in 1953 with an impressive 7,674 people packed into spaces designed for significantly fewer. An explanation for this dramatic increase can be found in the fact that World War II had ended and left many soldiers requiring treatment for Post-traumatic stress disorder, which included procedures such as Insulin shock therapy and Electroconvulsive therapy. Greystone was one of the few places in the country capable of treating such patients.

The 1970s and 1980s finally saw some weight lifted from this overcrowded facility because of the trend toward de-institutionalization, which was a direct effect of the use of Thorazine, one of the first drugs that was capable of treating the mentally ill. The trend continued to a point when Greystone was only a 550-bed facility when then Governor of New Jersey Christine Todd Whitman announced in 2000 that the state was going to close the facility by 2003. Some patients were slowly transferred to smaller-capacity programs, reducing the number of residential patients to approximately 450 in 2005. Then, on September 8, 2005, the New Jersey Health Care Facilities Financing Authority closed a $186,565,000 bond issue on behalf of the State of New Jersey Department of Human Services for the completion of a new, 43,000 m² (460,000 ft²) Greystone Park Psychiatric Hospital, which is scheduled to be open in October 2007, still with a shortage of about 75 beds.

The decision to close Greystone in 2000 came about not only because of concerns for the aging buildings, but also due to the recent negative press it was receiving. Specifically, accounts of sexual assault in a hospital elevator, patients committing suicide, patients becoming pregnant, and a twice-convicted rapist escaping did not help Greystone's public image. The last patient left Greystone's Kirkbride building (the main building) in 1988 and, except for a tiny section preserved for administrative offices, the state shut off the heat, turned out the lights and walked away.

The current Greystone campus covers over a square mile and consists of 43 buildings.

The original Second Empire Victorian style building was 62,589 m² (673,706 total square feet). At the base of this massive building was the alleged largest continuous foundation in the United States from the time it was built until it was surpassed by the Pentagon when it was constructed in 1943. However, many other Kirkbride asylum buildings (such as the Ohio State Asylum for the Insane) also lay a claim to this fame and it has not been verified which one is true. The building has a characteristic linear arrangement, which was designed to the specifications of the Kirkbride Plan. The main building has a center section that was used for administrative purposes with three wings radiating out from the center, each about 42.7 meters (140 ft) long. They were set back from the previous one so that patients could enjoy the beauty of the outside surroundings. This was a central concept, along with moral treatment, that was the hallmark of the Kirkbride Plan for treating the mentally ill. The building form itself was meant to promote treatment and have a curative effect.

Each ward was initially set up to accommodate 20 patients. Each was furnished with a dining room, exercise room, and parlor. Most wards had wool rugs that ran the full length of the corridors. Other amenities included Victorian stuffed furniture, pianos, pictures, curtains and fresh flowers. Though not all wards were created equally. Wards that housed the most excitable patients were sparsely furnished — presumably for their own safety — with sturdy oak furniture.

Initial fees were $3.50 per week for a normal patient. For persons seeking private apartment-style living, the rent could be anywhere from $5.00 to $10.00 per week.

During the time that Greystone was built, the predominant philosophy in psychology was that the mentally ill could be cured or treated, but only if they were in an environment designed to deal with them. A major proponent of this philosophy was Thomas Story Kirkbride, who participated in the design phase of the main building at Greystone, though the two main designers were architect Samuel Sloan and Trenton State Asylum Superintendent Horace Buttolph (a friend of Kirkbride's). The building was constructed and furnished according to Kirkbride's philosophy, which proposed housing no more than 250 patients in a three story building. The rooms were to be light and airy with only two patients to a room. To reduce the likelihood of fires, Greystone and other Kirkbride asylums were constructed using stone, brick, slate and iron, using as little wood as possible. A street on the Greystone Park campus bears Buttolph's name.

The Greystone campus itself was once a self-contained community that included staff housing, a post office, fire and police stations, a working farm, and vocational and recreational facilities. It also had its own gas and water utilities and a gneiss quarry, which was the source of the Greystone building material. Below the building, a series of tunnels and rails connect the many sections. Its self-sufficient design is a testament to the legacy of the asylums of its era. Like the layout and interior of the building, the Greystone grounds with rolling greens, lavish gardens, and fountain features were designed to aid in the treatment of the mentally ill.

Until 2003, the future of most of the historic buildings was uncertain. Many of the buildings are vacant and need major repairs. Preservationists have been working for several years to guarantee the survival of this complex of buildings. Morris County had been negotiating with the State of New Jersey to take over vacant structures for non-profit agencies. In 2003, Morris County finalized plans to purchase about 300 acres (1.2 km²) of Greystone Park from the state for $1.00. The purchase included many of the vacant, dilapidated buildings. As of 2008 the buildings located on the land purchased by Morris County have been demolished in preparation for building a park. The new park has been named "Central Park" in an effort to distance it from the asylum's history.

Ground was ceremonially broken on November 16, 2005, for the new psychiatric hospital on the Greystone campus (behind the Kirkbride). The estimated date of opening was October 2007. However the due to many delays and problem the hospital did not receive patients until July of 2008. The new hospital is two-thirds the size of the Kirkbride building and will house about 450 patients, with another 100 patients living in hospital-run cottages on the grounds around the main building. All clients of Greystone are being transferred from their current buildings, to the new main building of the hospital. A mass move is planned thus housing for clients will be limited to the new main building as well as the cottages on the grounds.[1]